factors affecting the market price of stocks of joint stock commercial banks listed on the stock exchange

With the goal of identifying and evaluating the impact of factors affecting banking stock prices, through the theory of stock prices and factors affecting banking stock prices, we have b

OVERVIEW OF THE TOPIC

Introduction of commercial banks

A commercial bank is a bank that deals in money for profit Commercial banks mainly and regularly receive deposits from customers to provide credit and perform discount operations and as a means of payment As a business organization, commercial banks' operations are based on the economic accounting regime with the aim of making profits Commercial banks are permitted by law to conduct a wide range of banking business operations, such as: receiving term and demand deposits; performing discount operations; payment services; raising capital by issuing debt certificates…

In short, a commercial bank is a type of intermediary financial institution doing business in the field of money and banking services This is the most important intermediary financial institution in the market economy, contributing to the creation and supply of capital for the economy, facilitating and promoting socio-economic development.

Theoretical Foundation

The market value of a stock is the price the stock is at a given time traded on the stock market Depending on the supply-demand relationship, the market price may be higher, lower or equal to its actual value at the time of transaction The supply-demand relationship of stocks is affected by many economic, political and social factors, the most important of which is the company's market price and its profitability In addition, investors' expectations about the performance of business operations, the profitability of a company in the future will be reflected in the market value of shares

The market price of shares is determined and measured by the share price obtained from the result of trading orders The market value of shares is affected by many factors both internal and external to the business The volatility of the market value of shares is the change in the trading price on the stock market of listed companies Volatility in the market value of a stock is understood as the uncertainty of changes in a stock's price around the average value of the stock itself A stock is said to be highly volatile when the share price

10 during that period deviates greatly from the average value of the stock itself; conversely, a stock is said to be volatile volatility is low when a stock's price during that period does not deviate significantly from its average value

1.2.2 Random Walk Theory of Stock Prices

The results of the study of economist Maurice Kendall (1953) on stock prices in the market confirm that stock prices change randomly and unpredictably This is the essence of the argument that stock prices should follow a random walk, meaning that price changes should be random and unpredictable In addition to evidence of market irrationality, randomly fluctuating stock prices would be a necessary result of smart investors competing for information to buy or sell a security before the rest of the market The market is aware of that information

In other words, the change in the stock price in the market is a "random walk" According to Kendall, if stock prices are predictable and he uses his method to predict stock prices in the near term, then investors will immediately look for ways to achieve consistent returns tend to buy stocks when they can predict that the share price will trend up and conversely sell stocks when they predict it will trend down If this happens, it can disappear immediately because the prediction of a future uptrend in the security's price will immediately increase the demand for the security at present which leads to the current price of the security setting up ie increase On the contrary, any judgment about the possibility of a decrease in stock prices in the future will immediately cause the demand for securities to decrease, leading to a decrease in stock prices Thus, it can be asserted that stock prices will immediately react to any new information that is thought to be implicit in the prediction of the "random walk" model

Don’t confuse randomness in price changes with irrationality in the level of prices If prices are determined rationally, then only new information will cause them to change Therefore, a random walk would be the natural result of prices that always reflect all current knowledge Indeed, if stock price movements were predictable, that would be damning evidence of stock market inefficiency, because the ability to predict prices would indicate that all available information was not already reflected in stock prices Therefore, the notion that stocks already reflect all available information is referred to as the efficient market hypothesis (EMH)

Thus, according to this theory, when the stock market is an efficient market, stock prices will be influenced by many factors such as macro factors and micro factors However, many empirical studies have shown that in many countries the stock market is inefficient, so stock prices do not really reflect the reality of the market due to the influence of many other factors on stock prices

Market efficiency is the ability and speed with which the aggregate of information in the market affects security prices A market is said to be efficient when it is information efficient, in other words, the prices of traded assets such as stocks, bonds, and real estate, reflect all information known information in the market Thus, an efficient market would be unbiased, i.e it would not unreasonably benefit or lose anyone relative to another, in the sense that it reflects the beliefs of all investors about market outlook

Professor Eugene Fama of the University of Chicago was credited with developing the concept of "efficient markets" as an academic concept during his studies in the early 1960s at the same university

The efficient market hypothesis is stated that it is impossible for an investor to outperform the market using all the information the market already knows, unless by luck Information or news in an efficient market is defined as any information that can affect the price of a stock, which is not known at present and will only appear randomly in the future future It is this random information that will cause the stock price to fluctuate in the future According to this hypothesis, markets in which insider trading occurs cannot be considered efficient markets

Excluding subjects seeking to maximize profits, the efficient market hypothesis requires that all subjects have reasonable expectations That means, even if no one is right, the market average is correct and whenever new information comes in, subjects will automatically update their predictions accordingly fit When faced with new information,

12 each investor will react differently, all that the efficient market hypothesis requires is just that the reactions of investors are completely random, to Their net effect (after offset) on the market price is not exploited by investors for unusually high returns, especially after deducting transaction costs Therefore, anyone can make a wrong prediction about the market, but because a stock's price is affected by the whole market, its price is the expected market price, or in other words, overall, the market is always right

1.2.4 Par-value of common stocks

Par value: The value stated on the share certificates is the par value of the shares The par value of each share has only nominal value Normally, for a newly established company, the par value of shares is calculated as follows:

Par value of common share= 𝐂𝐡𝐚𝐫𝐭𝐞𝐫 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐣𝐨𝐢𝐧𝐭 𝐬𝐭𝐨𝐜𝐤 𝐜𝐨𝐦𝐩𝐚𝐧𝐲 𝐨𝐟

Par value of common stock, also known as nominal value, is the value that the company assigns to each share and is recorded on the share The par value of shares has the meaning only of common shares based on the taking of charter capital divided by the number of shares registered to issue

1.2.5 Book value of common stocks

Book value of a common stock is the value of a stock determined on the basis of a company's bookkeeping data to reflect the equity position at a given time The book value of a company is determined by

Literature review

1.3.1 Research on the impact of GDP

GDP (English: Gross Domestic Product) also known as Gross Domestic Product means the total value of all final goods and services produced within the geographical boundaries of a country over a period specified period, usually 1 quarter, 6 months, 9 months and one year.

For a country, the GDP index means a lot Whereby: GDP is a measure to assess the economic growth of a country and represents the fluctuation of products/services over time The decline in GDP will have an adverse impact on the economy and may lead to economic recession, inflation, unemployment, currency devaluation, etc to the production and business process of enterprises as well as the lives of people GDP per capita will tell you the relative income level as well as the quality of life of people in each country

The GDP growth makes the population labor level increase, creating conditions to create jobs for workers Besides, it also creates a material premise to strengthen national defense and security, strengthen the political regime, and increase the prestige of the state's role The investment in the stock market is also active and investors are more confident when putting money into stocks on the market Optimism led to a sharp increase in the market price of some stocks

Research by Mehr-un Nisa & Mohammad Nishat (2012) has shown that GDP has a positive impact on stock prices In the study, Nisa and Nishat applied the GMM method to study the factors affecting the Pakistani stock market The results show that there is a positive movement between stock prices and capital structures, market- -book ratio, EPS, to and size of the company Regarding macro factors, the research results show that stock prices fluctuate in the same direction as GDP growth, money supply and financial depth In contrast, stock prices move inversely with interest rates and inflation rates Research has shown that a 1% increase in GDP growth increases stock prices by 0.87 points This means that GDP has a positive and negative impact on stock prices

Al-Qenae et al (2002) studied the Kuwait stock market, concluded that earnings per share (EPS), gross domestic product (GDP) have a positive impact with the volatility of stock prices in the market However, stock prices move inversely with interest rates and inflation In another study, Adaramola, Anthony Olubega (2011) also had similar results as the two studies above when it showed that GDP has a positive impact on stock prices Two researchers studied the period from 1985-2009, which is a representative period of reform in Nigeria GDP and oil prices have a negative effect on stock prices while interest rates and exchange rates have a negative effect on Nigerian stock prices

1.3.2 Research on the effect of return on equity (ROE)

Return on equity (ROE) is determined by the ratio of profit after tax to the average equity during the period of the business Formula: Profit after tax ROE = Average Equity (Average equity for the period is calculated as the average of the company's beginning and ending equity In the absence of sufficient data, the analyst will equity can be used at some point in time, for example at the end of the period, instead of average equity) This ratio indicates the size of the after-tax profit generated from each dollar invested by the owners, thereby reflecting the efficiency of the enterprise's use of equity and the relative profit that the shareholders enjoy when investing in a business Therefore, ROE is an indicator of special interest to investors, often used as a basis for assessing the profitability of an enterprise, helping potential investors make decisions in investment activities.

Albu Hashish (2003) examined the role of published accounting information in stock price prediction The results show that there is a positive relationship between stock price and net return on capital The results also show a significant negative relationship between the market value per share and the ratio of fixed assets to total assets, the ratio of wages to total expense ratio Another study by AL Khalayleh (2001) examined the relationship

16 between the indexes of 40 companies listed in Amman Jordan from 1984-1996 The results show a positive relationship between the market price per share

Most studies show a positive relationship between stock prices and corporate profitability ratios In the banking industry, too, the share price of the banking industry and the profitability ratio also have a positive relationship The higher the profitability ratio, the more efficient the bank can be and can bring high dividends to shareholders

1.3.3 Research on the effect of return on total assets (ROA)

Return on assets ratio measures a company's performance in using assets to generate profits, the higher this ratio, the greater the profitability per unit value of assets Assessing over time, the more this indicator increases, the more positive it is assessed Securities analysts, as well as shareholders, are particularly interested in this indicator In general, the higher the earnings per share, the more attractive the stock

Abu Hashish (2003) examined the role of published accounting information in predicting stock prices The study used a sample of 40 public companies listed on the Jordan Exchange in 2003 The results show that there is a positive relationship between the market price of each share and the ratio of net return to total assets Most studies show a positive relationship between stock prices and corporate profitability ratios In the banking industry, there is a positive relationship between the bank's share price and profitability ratio The higher the profitability ratio, the more efficient the bank is and can bring good dividends to shareholders

1.3.4 Research on the effect of profitability (EPS)

Earnings per share (EPS) is the portion of profits a bank allocates to each outstanding share of common stock Earnings per share (EPS) is expressed as an indicator showing the profitability of commercial banks The higher this ratio, the more attractive the stock of this bank Banks with higher earnings per share (EPS) reflect the bank's performance per share better Therefore, this is the criterion that investors consider when deciding to invest in stocks.

In the study Uddin, Reaz, Zahidur Rahman & Rajib Hossain (2013) test the relationship between EPS and stock price using data for the period 2005-2010 to clarify the determinants of volatility stock prices in the Bangladesh market Using simple regression analysis, the study shows a positive relationship between stock price and EPS, EPS plays an important role Chang et al (2008) determined a positive relationship between stock price and EPS, for companies with high growth rate, EPS has little impact on stock price Ball and Brown (1968); Baskin (1989); Malhotra and Tandon (2013); Almumani (2014); Muhammad et al (2014) have shown that earnings per share have a positive relationship with the market price of the stock In the Vietnam market, Truong Dong Loc (2014) found earnings per share (EPS) to have a positive relationship with stock price change Based on the above theory and research, it can be hypothesized

1.3.5 Research on the effect of Net Profit Margin (NIM)

Net interest margin (NIM) is a measure of the difference between interest income generated by banks or other financial institutions and the amount of interest paid to their lenders, compared to what they earn It is similar to the gross margin (or gross margin) of non-financial companies

Net interest margin is usually expressed as a percentage of the money a financial institution earns on loans over a period of time and other assets minus the interest paid on the loans divided by the amount average of the assets it earned in that period

The net interest margin is similar to the net interest spread, but the net interest spread is the nominal average difference between the lending rate and the lending rate, which does not offset the fact that the earning asset and the borrowed capital can be different tools

MODEL SPECIFICATION

Experiment data

On the basis of the theory stated above and the former researcher’s experiments of factors affect commercial bank stock price, combined with data that we have obtained, our group decided to build a model included: market price (price), economic growth (growth), return on equity (roe), earning per share (eps), net interest margin (nim), credit growth (credit), non-performing loans (npl), price to book value (pb)

Price = f(growth, roe, roa, eps, profit, nim, credit, npl, pb)

Inherent from previous experiments, our team had decided the method of measurement in the following table:

Variables Meaning Unit of measurement

Source price Market price Thousand

Average price of a stock in a quarter vietstock.vn growth Economic growth

% Vietnam’s quarterly growth rate gso.gov.vn roe Return on equity

% Company’s quarterly return on equity

Company’s financial statements roa Return on asset % Company’s quarterly return on asset

Company’s financial statements eps Earning per share

Company’s quarterly earning per share

Company’s financial statements nim Net interest margin

% Company’s quarterly net interest margin

Company’s financial statements credit Credit growth % Company’s quarterly credit growth

Company’s financial statements npl Non- performing loans

% Company’s quarterly non-performing loans

Company’s financial statements pb Price to book value

Company’s quarterly price to book value

*Apart from price,all variables are independent variables Figure 2 Variables & Method of Measurement

24 Our essay was implemented and researched based on secondary data collected from trustworthy sources

We used panel data with:

● Cross-sectional: 6 Banks in Vietnam included: Asia Commercial Bank (ACB), Eximbank (EIB), Military Bank (MBB), Sai Gon - Hanoi Bank (SHB), Sacombank (STB), Vietinbank (CTG)

● Time-series: data collected continuously for each quarter in 2013-2020.

Regression model building

Independent variables: growth, roe, roa, eps, profit, nim, credit, npl, pb β0: Model intercept

𝛽󰆹 0 : The estimation of model intercept β i,i=1,9 : Model coefficients

𝛽󰆹 𝑖,𝑖=1,9 : The estimation of model coefficients ui: Error term

𝑢 i : The estimation of error term

The interpretation of the variables of the model:

 𝛽󰆹 0 : Is the intercept of the model, equal to the average price when others independent variables equal to zero

 𝛽󰆹𝑖,𝑖=1,9 : When an independent variable increases by 1 unit, then the average of price will rise/fall by 𝛽󰆹𝑖,𝑖=1,9  given that other variables aren’t changing

- GDP growth rate (growth): When GDP grows at a higher rate, the banking industry is more likely to operate well as many firms need to loan cash to finance for their projects during the expansionary of the business cycle Therefore, their stock prices are likely to go up The research of Mehr-un Nisa & Mohammad Nishat (2012) pointed out that GDP has a positive effect on the market price Also, the research had shown that if GDP grows by 1%, then the market price will increase 0.87 point, which shows a strong positive relationship between GDP and the market price Based on the theories and researches mentioned above, our team come to a hypothesis that:

H1: GDP growth has a positive relationship with the market price of the listing commercial banks

- Return on Equity/Asset (roe/roa): a higher return on equity ratio often means that the companies use the same equity/asset to earn more profit, therefore, investors will prefer to buy the stock and estimate companies’ valuation at a higher price Due to the fact that the more efficient the company works, the shareholders of it are likely to receive high dividend payouts The research conducted by AL Khalayleh (2001) had tested out the factors affecting the price of 40 listing companies in Amman Jordan from 1984 to 1996 had found out a positive relationship between the market price and return on equity/asset in all industries Based on the theories and researches mentioned above, our team come to a hypothesis that:

H2,3: Return on equity/asset has a positive relationship with the market price of the listing commercial banks

- Earnings per share (eps): the ratio serves as an indicator of a company's profitability, the higher a company's EPS, the more profitable it is considered to be In Vietnam’s market, Truong Dong Loc (2014) showed that EPS has a positive relationship with the change in the

26 market price Based on the theories and researches mentioned above, our team come to a hypothesis that:

H4: Earnings on equity has a positive relationship with the market price of the listing commercial banks

- Profit growth rate (profit): The growth rate of the enterprise shows the future development prospects of the enterprise The fluctuation in feasible development rate not just mirrors the adjustment of the size of activity results, yet in addition mirrors the solidness, advancement circumstance and solid development level of enterprises Also, research by Nikhil Varaiya and Roger A Kerin showed that the growth rate of corporate profits has a positive impact on stock prices

H5: Profit growth rate has a positive relationship with the market price of the listing commercial banks

- Net interest margin (nim): NIM is a profitability indicator that approximates the likelihood of a bank or investment firm thriving over the long haul This metric helps prospective investors determine whether or not to invest in a given financial services firm by providing visibility into the profitability of their interest income versus their interest expenses Therefore, a higher NIM is preferable

H6: NIM has a positive relationship with the market price of the listing commercial banks

- Credit growth rate (credit): Capital mobilization and credit extension activities are the main activities of commercial banks Through the growth rate of total deposits and credit extension activities, the bank's business performance is shown Therefore, a higher growth rate is more preferable

H7: Credit growth rate has a positive relationship with the market price of the listing commercial banks

- Non-performing loans (npl): is a loan in which the borrower is in default due to the fact that they have not made the scheduled payments for a specified period and it’s required a higher risk provisioning rate which can lead to a reduce in banks’ net profit Therefore, this ratio acts as a red flag to investors and the stocks may not be preferable

H8: Non-performing loans have a negative relationship with the market price of the listing commercial banks

- Price to book value ratio (pb): A P/B ratio less than 1 tells us that the company traded less than its book value, for the market believes that its book value is overstated or may offer low return Therefore, a higher P/B is more preferable Also, a research by Khan and Amanullah (2012) showed that P/B al had a positive relation to stock price Based on the theories and research mentioned above, our team come to a hypothesis that:

H9: Price to book value ratio has a positive relationship with the market price of the listing commercial banks

Variables Expected effect growth (+) roe (+) roa (+) eps (+) profit (+) nim (+) credit (+) npl (-) pb (+)

Descriptive statistics

 Use sum command to describe quantitative variables: sum Price Growth ROE ROA EPS Profit NIM Credit NPL P/B, and we can obtain the following:

Variables Observations Mean Standard Deviation Min Max price 192 16277.97 6635.374 5083.077 44054.84 growth 192 5.935 1.51719 36 7.65 roe 192 2.67979 1.78914 -4.81846 7.1943 roa 192 20814 15324 -.42077 57354 eps 192 1564.344 1070.528 -305 4669 profit 192 37.49309 138.0667 -256.0073 1321.083 nim 192 868 43998 05153 3.17386 credit 192 66.75992 120.7074 -89.07528 840.7608 npl 192 2.10777 1.26219 54279 9.06516 pb 192 1.153379 3669947 3628178 2.60803

- price: the average of price is 16277.97 VND, ACB in the second quarter of 2018 had the highest price (44054.84), SHB in the fourth quarter of 2016 had the lowest price (5083.077), and the standard deviation is 6635.374

- growth: GDP growth rate of the sample has a mean of 5.935, the highest GDP growth rate occurring in the fourth quarter of 2017 (7.65), the lowest is in the second quarter of

2020 (0.36), and the standard deviation of 1.51719

- roe: return on equity of the sample has a mean of 2.68, ACB in the second quarter of

2018 had the highest roe (7.19), EIB in the fourth quarter of 2014 had the lowest roe (-4.82), and the standard deviation of 1.78914

-roa: return on assets of the sample has a mean of 0.20814, ACB in the fourth quarter of

2020 had the highest ROA (0.57354), EIB in the fourth quarter of 2014 had the lowest ROA (-0.42077), and the standard deviation of 0.15324

- eps: earnings per share of the sample has a mean of 1564.344, ACB in the fourth quarterof 2018 had the highest EPS (4669), SHB in the second quarter of 2013 had the lowest eps (305), and the standard deviation of 1070.528

- profit: the average of profit growth rate is 37.49309, EIB in the fourth quarter of 2020 had the highest profit (1321.083), STB in the fourth quarter of 2015 had the lowest profit (- 256.01), and the standard deviation of 138.0667

- nim: net interest margin of the sample has a mean of 0.868, the highest NIM occurring in the fourth quarter of 2017 by CTG (3.17386), the lowest is in the fourth quarter of 2018 (0.05153), and the standard deviation of 0.43998

- credit: the average of credit growth is 66.75992, the highest credit occurring in the third quarter of 2020 by EIB (840.7608), the lowest is in the third quarter of 2019 by EIB (- 89.07528), and the standard deviation of 120.7074.

- npl: non-performing loan of the sample has a mean of 2.10777, the highest NPL occurring in the second quarter of 2013 by SHB (9.06516), the lowest is in the fourth quarter of 2019 by ACB (0.54279), and the standard deviation of 1.26219

- pb: price- -book of the sample has a mean of 1.153379, ACB had the highest P/B to occurring in the second quarter of 2018 (2.60803), SHB had the lowest is in the fourth quarter of 2016 (0.3628), and the standard deviation of 0.3669947.

ESTIMATED MODEL AND STATISTICAL INFERENCE 31

The result and interpretation of the estimation

 The result of OLS method:

In STATA, we use: reg price growth roe roa eps profit nim credit npl pb, then we can obtain:

Figure 5 Result of OLS method

The result has some variables that meet the expectation relationship, however, some don’t The following part will explain it in more detail.

Testing statistical significance of the regression coefficients

- Return on equity (ROE): Return on equity variable has a positive coefficient as expected with a high statistical significance This means that ROE has a positive relationship with bank stock price as expected The bank's business performance is reflected in the ratio of profit after tax to total equity In the research model, the factor of return on equity can explain its impact on the bank's share price, when the bank operates effectively,

32 the bank's stock price increases This result is also true with the studies of the authors mentioned in the above section In fact, the market price of stocks depends on supply and demand in the market or investors' buying and selling decisions Before making an investment decision, investors often consider the profitability of the bank and then compare it to the market Compare with other stocks in the same industry and then make a decision to buy or sell securities

- Return on total assets (ROA): Return on total assets measures a bank's performance in using assets to generate profits, the higher this ratio, the greater its profitability The return on total assets variable has a negative coefficient, contrary to expectations This means that ROA has an inverse relationship with bank stock prices as expected Return on total assets measures a bank's performance in using assets to generate profits, the higher this ratio, the greater its profitability This can be explained by the fact that the input data does not reflect the effect of ROA on stock price due to the lack of expectations of the investors and other factors

- Earnings per share (EPS): Through the results of the model analysis, we see a positive correlation between earnings per share and stock price This makes perfect sense with the results from the studies mentioned above The growth rate of earnings per share reflects the quality of the company's profit growth, the more sustainable, stable and tends to increase in the long term, the more the enterprise is highly appreciated in its business activities business and vice versa Banks with higher earnings per share (EPS) reflect the bank's performance per share better Therefore, this is the criterion that investors consider when deciding to invest in stocks

- Total credit growth rate: The credit growth variable has a positive sign, in line with expectations and has a high significance level This can completely explain that when the State Bank of Vietnam "relaxes the credit room", the percentage of loanable capital will increase, thereby improving the bank's profit In the development period, high credit growth will create a driving force for the economy For Vietnam's commercial banking system, credit growth is always a top concern, because credit growth reasonably and quality will create a stable and safe source of income for the banks

- Non-performing loan: The analytical results obtained, the higher the bad debt ratio, the higher the stock price of commercial banks, showing a positive relationship with the regression coefficient and different from the results of the authors' studies mentioned above, however the level of confidence is low The NPL variable has a positive sign unlike expectation and is not statistically significant at the 5% level This can be explained because the input data has not yet reflected the impact of Non-performing loans on the bank's stock price due to the lack of impact of risk-provisioning as well as several other factors The variable Non Performing Loan has a positive sign, contrary to expected expectations and is not statistically significant at the 5% level The analytical results obtained, the higher the bad debt ratio, the higher the stock price of commercial banks, showing a positive relationship with the regression coefficient and different from the results of the authors' studies mentioned above This can be explained because the input data has not yet reflected the impact of Non-performing loans on the bank's stock price due to the lack of impact of risk-provisioning as well as several other factors

- P/B: Accounting value is calculated based on the numbers recorded in the accounting books, such as the value of fixed assets, current assets or calculated through capital sources including equity and liabilities These are assets that have been recognized in the past, that is, from the time the company owns the asset and according to the historical cost principle, it is kept until the asset is lost Therefore, it can be said that an accounting price is the total value of assets of the company calculated in a certain period, usually in an accounting year, and it only changes when there is a change in the size or structure of assets A company's market value is determined in the stock market by its market capitalization, i.e how

"valued" the shares issued by that company are to investors

When this P/B ratio is high, it means that the market has high expectations for this stock and the business can do well in the future Therefore, investors are willing to spend an amount higher than the book value of the business to be able to own it

What counts as a “good” price-to-book ratio will depend on the industry in question and the overall state of valuations in the market For example, between 2010 and 2020 there was a steady rise in the average price- -book ratio of the technology companies listed on the toNasdaq stock exchange, roughly tripling during that period An investor assessing the price-

34 to-book ratio of one of these technology companies might therefore choose to accept a higher average price-to-book ratio, as compared to an investor looking at a company in a more traditional industry in which lower price- -book ratios are the norm to

- Profit growth: Profit growth is one factor that affects the stock prices of commercial banks In this study, we study in detail how profit growth in each bank affects stock prices The analysis results obtained, the higher the profit growth, the lower the share price of the bank Profit growth is high, but there is also a potential risk in which is low provisioning, from which investors lower their expectations of future profits, thereby causing stock prices to drop In case the actual profit of the bank is not as high as expected, it can lead to the decline of the bank's stock For example, CTG bank has a forecasted profit of 13000 bio in Q2 but in reality it is only 8000 bio Although profit still increased over the same period last year, it was lower than expected profit, leading to a sharply decrease of CTG stock, from VND 42,000 to VND 29,000 The variable P/B has a positive sign, in line with expectations with a high level of significance This means that P/B is positively related to bank stock price

Accounting value is calculated based on the numbers recorded in the accounting books, such as the value of fixed assets, current assets or calculated through capital sources including equity and liabilities These are assets that have been recognized in the past, that is, from the time the company owns the asset and according to the historical cost principle, it is kept until the asset is lost Therefore, it can be said that an accounting price is the total value of assets of the company calculated in a certain period, usually in an accounting year, and it only changes when there is a change in the size or structure of assets A company's market value is determined in the stock market by its market capitalization, i.e how

"valued" the shares issued by that company are to investors

When this P/B ratio is high, it means that the market has high expectations for this stock and the business can do well in the future Therefore, investors are willing to spend an amount higher than the book value of the business to be able to own it

What counts as a “good” price-to-book ratio will depend on the industry in question and the overall state of valuations in the market For example, between 2010 and 2020 there was a steady rise in the average price- -book ratio of the technology companies listed on the to Nasdaq stock exchange, roughly tripling during that period An investor assessing the price- to-book ratio of one of these technology companies might therefore choose to accept a higher average price- -book ratio, as compared to an investor looking at a company in a to more traditional industry in which lower price- -book ratios are the norm to

- NIM: The significant NIM indicates how much banks are actually enjoying the difference in interest rates between deposit and credit investment activities.For NIM, a bank has ability to allocate assets to the best interest-bearing assets, give the best interest income in the period due to its efficient mobilization and lending activities, efficient capital allocation, and more The result will have a high NIM Depending on the credit cycle and regulatory policies of the State Bank or the lending policy of each bank, there will be NIM ratios at different periods between periods and between banks An increase in NIM indicates a sign of good asset management, Debt-Liquid, while NIM tends to be low and narrow, indicating a narrowing of bank profits Therefore, when NIM is low, investors will be afraid to invest in bank stocks Since then, the demand for bank shares has been low, so the price of bank shares has decreased The variable NIM has a positive sign, in line with expectations, and is highly significant at the 5% level This indicates that the variable NIM has a positive effect on bank stock prices The significant NIM coefficient indicates how much banks are actually enjoying the difference in interest rates between deposit and credit investment activities For NIM, a bank has the ability to allocate assets to the best interest- bearing assets, give the best interest income in the period due to its efficient mobilization and lending activities, efficient capital allocation, and more The result will have a high NIM Depending on the credit cycle and regulatory policies of the State Bank or the lending policy of each bank, there will be NIM ratios at different periods between periods and between banks An increase in NIM indicates a sign of good asset management, Debt- Liquid, while NIM tends to be low and narrow, indicating a narrowing of bank profits Therefore, when NIM is low, investors will be afraid to invest in bank stocks Since then, the demand for bank shares has been low, so the price of bank shares has decreased

- GDP growth rate: Firm's profitability increases during economic expansion, and declines in recession's period Thus, a higher GDP growth causes firm s loans and deposits ’

Diagnosing problems of the model

{H 0 = model has no omitted variables

H1= model has omitted variables With the significant level (α) of 5%, therefore in STATA, we use:

Prob > F = 0.2683 > 0.05; therefore, we do not have enough evidence to reject

H0, and we can conclude that the model has no omitted variables

Multicollinearity is the high degree of correlation among the independent variables, which may make it difficult to separate out the effects of the individual regressors, and standard errors can be overestimated, and t-values can be depressed The problem of multicollinearity can be detected by examining the correlation matrix of regressors and carrying out auxiliary regressions amongst them Since we have already conducted the correlation matrix of regressors to drop out a variable that is highly correlated with another in the previous part, now we examine the regression among the remaining variables In STATA, we use the command VIF (variance inflation factor)

As VIFs and Mean VIF < 10 => the model has no multicollinearity

Heteroskedasticity happens when the variance of the error term is not constant, which makes the least squares results no longer efficient, and t-values and F-values misleading The problem of heteroscedasticity can be detected by plotting the residuals against each of the regressors, most popularly the White test We have the following hypotheses:

In the case, as Prob>chi2= 0.0000 < α = 0.05, so H0 is being rejected and we can conclude that there is heteroskedasticity in the model

Autocorrelation happens when there is a correlation between explanatory variables and disturbance terms The problem of autocorrelation can be detected by using Cumby- Huizinga test, and because the model has heteroscedasticity, we will use CH test with option robust to put this error under control In STATA we can use:

Based on the result, with the significance of 5%, we notice that there is autocorrelation at level 10 in the model, as p-value in level 11 is greater than the significant level

3.3.5 Result after fixing model errors

To resolve the problem, in STATA, we decided to use:

xtgls price roe roa eps nim credit pb, panel(cor)

Therefore, our final model will be:

CONCLUSION AND RECOMMENDATIONS

Conclusion

Throughout the researching process, as we have conducted a research on 6 listed commercial banks in 2013-2020, and the result showed that the former hypotheses have been proved Variables such as ROE, ROA, EPS, NIM, credit growth, P/B have shown their impact on banks’ stock price As higher net profit or the more efficient the banks work which is illustrated by profitability ratios such as ROE, ROA, EPS, NIM These ratios act as indicators for the investors to expect a higher return

Therefore, we would like to suggest our recommendations for the commercial banks as well as for investors

Recommendations

Investors need to observe the evolution of the company's financial indicators such as annual dividend payment, return per share, P/E ratios at each information disclosure period, in order to It provides forecasts of future stock price movements for each stock in its portfolio However, caution should be exercised when making investment decisions, because in some cases, fluctuations in stock prices are already reflected before or after such information is published

For company managers, based on business results of enterprises, financial indicators when announced, or given macro information, can partly predict price fluctuations of the company's shares, thereby taking the initiative in preventing problems such as buying shares to acquire from competitors, actively disclosing information on buying and selling treasury shares of the company

Aggressive, management's provisioning criteria, investors need to monitor how government circulars and policies will affect the Bank's operations and profits in the future For example, the government issued Circular 14 on debt deferral and interest rate reduction for loans until June 2021 The circular stipulates debt postponement and debt interest rate reduction but does not mention the postponement of deductions provisioning High provisioning, which leads to a decrease in business cash flow, infers a decrease in revenue/profit of the banking group in the near future Circular 14 came out to save these businesses, but gave them half time the year to 6/2022 is the deadline, if the situation is still complicated, it will be difficult for businesses to manage Otherwise, it will become a group of worse debts, then the Bank will have to set aside these debts The nature is still bad debt, but the time of group transfer is postponed, and the bank will have to make more deductions The short-term is a good story but the long-term is bad for the banking industry For banks, rational use of capital, control bad debts at an appropriate level

Expand the scale, improve the bank's reputation Banking is a key industry in the : economy The expansion of scale and enhancement of reputation will help the bank create a brand name and show that the bank has a good business situation, thereby receiving attention from investors The expansion of the bank's scale will make the bank occupy more market share and have a position in the market Banks can use their prestige and large market share to access capital sources with low interest costs, thereby improving profit margins and increasing stock prices To do so, the bank needs to focus on propaganda, marketing and advertising as well as improve the quality of human resources, improve management efficiency To be able to mobilize large capital, banks need to improve people's understanding of the services that banks provide Banks must organize networks to all economic centers as well as areas of concentration of population The staff not only accept deposits, enter books and documents, but also introduce the benefits of related services

Improve service quality, create new revenue streams Banks are only allowed a certain : rate of credit growth each year by the State Bank, so in order to have high profits and increase competitive advantages, banks cannot only focus on lending and granting loans credit, but should develop new and practical services to be profitable, and at the same time apply information technology to banking operations For example, VPB has a subsidiary FE credit Since the establishment of the subsidiary (from 2015 to now), FE Credit has brought VPBank nearly VND 19,000 billion in pre-tax profit Since its establishment, FE Credit has brought this bank about VND 20,000 billion in pre-tax profit During the 2016-2019 period,

FE Credit usually contributes 45-50% of VPBank's total consolidated profit, considered the

44 Increase the bank's net profit margin: Several actions to improve net interest income for issuers:

 To increase net interest revenue, underwrite to risk with a range of rates & test markets with higher rates

 To decrease interest expense, large issuers should use capital markets & small issuers should increase deposits

 To decrease interest expense, also focus on high-risk accounts and aggressively close credit lines when risk warrants

 To increase non-interest revenue, maximize delinquency fee structure & improve collection charge-off recovery process

 To increase non-interest revenue, also drive product offerings to interchange friendly card products

 To decrease non-interest expenses, protect against abuse of credit card rewards & tighten underwriting in reaction to growth of installment loans

 To decrease non-interest expense, also strengthen collection functions and policies in advance of next economic downturn

Investors will have short-term (surfing), medium-term and long-term stock trading options depending on each person's risk appetite In which, stock surfing is chosen by the majority of investors thanks to its flexibility This option requires investors to be sensitive to the market, buying or selling must stick to stock trends and corporate news such as major shareholder transactions, stock trading fund, change leadership

With the medium and long-term approach, investors need to focus on the basic elements of the business, monitor the past business performance to make judgments in the future Businesses with profitable growth and sustainable business plans will be the preferred choice However, investors should observe stock trends in the market to make accurate buying decisions, avoid buying stocks at the peak when expectations are reflected in the price

Handling and preventing bad debt from increasing: Although the results of the study are not statistically significant, the fact that bad debt in recent years has had a negative impact on the performance of Vietnamese banks In the past, bad debts have been handled through solutions such as VAMC bonds, using the budget or debt restructuring and debt cancellation solutions However, this method can only handle the floating part but not completely solve the problem of bad debt of the bank The reason is that banks have many problems in risk management, lax appraisal policies, lack of transparency in business activities as well as degraded ethics of some credit officers Commercial banks need to improve the quality of credit activities, ensuring strict procedures It is necessary to specialize in functions such as property valuation, appraisal and customer classification into different groups Commercial banks need to be serious about dealing with their bad debts in order to improve the efficiency of their banking operations, create trust with customers, and contribute to stabilizing the Vietnamese commercial banking system

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Limitations

We do notice that there are some limitations in our model, and there: many commercial banks that were listed lately or haven’t been listed yet, therefore, our sample size may not be large enough to fully explain the researched topic; some commercial banks possess unfair competitive edges that are hard to fully estimate which if we included it, outliers would exist in our model.

Excluding outlier

We remove the data of Vietcombank (VCB) from the model because Vietcombank enjoys special competitive advantages and these conditions are clearly reflected in the Bank's profit picture, thereby increasing the stock price This bank note has a much higher market value than other banks in the industry

Firstly, in terms of history, Vietcombank's predecessor was the Foreign Exchange Department under the State Bank of Vietnam Since officially coming into operation on April 1, 1963, when the country was still divided, banking services were still too luxurious for the majority of people, Vietcombank since its "birth" has brought the mission of a commercial bank, especially in terms of foreign trade Recalling history, to see that Vietcombank has a very different mission from other 100% state-owned or state-owned banks with a large proportion of capital such as Agribank, Vietnam Bank for Social Policies, BIDV, or Vietinbank Vietcombank does not have to bear too many "political tasks", social security like other banks That is a necessary condition for Vietcombank to focus all its efforts on developing into a purely commercial bank with financial potential and the right investment direction more than 55 years ago by the Party and State

Secondly, as mentioned above, as a bank specializing in international trade activities, Vietcombank currently has almost no competitors in activities related to foreign currency and foreign trade such as: currency, international payment, foreign exchange, To make it easier to imagine, let's look at the event that ThaiBev bought Sabeco for 5 billion USD And only Vietcombank has enough foreign currency potential to meet this deal The country has carried out the renovation process since 1986 and officially promoted international trade